Precautionary Saving of Chinese and U.S. Households

42 Pages Posted: 30 Sep 2014

See all articles by Horag Choi

Horag Choi

Monash University, Economics Department

Steven Lugauer

University of Kentucky - Department of Economics

Nelson C. Mark

University of Notre Dame - Department of Economics and Econometrics; National Bureau of Economic Research (NBER)

Date Written: September 2014

Abstract

We employ a model of precautionary saving to study why household saving rates are so high in China and so low in the US. The use of recursive preferences gives a convenient decomposition of saving into precautionary and non precautionary components. This decomposition indicates that over 80 percent of China's saving rate and nearly all of the US saving arises from the precautionary motive. The difference in the income growth rate between China and the US is vastly more important for explaining saving rate differences than differences in income risk. We estimate the preference parameters and find that Chinese and US households are more similar in their attitude toward risk than in their intertemporal substitutability of consumption.

Suggested Citation

Choi, Horag and Lugauer, Steven and Mark, Nelson Chung, Precautionary Saving of Chinese and U.S. Households (September 2014). NBER Working Paper No. w20527. Available at SSRN: https://ssrn.com/abstract=2502709

Horag Choi (Contact Author)

Monash University, Economics Department ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia
+61-3-9903-2848 (Phone)

Steven Lugauer

University of Kentucky - Department of Economics ( email )

Lexington, KY 40506
United States

Nelson Chung Mark

University of Notre Dame - Department of Economics and Econometrics ( email )

442 Flanner
Notre Dame, IN 46556
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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